Deposits, advances and retentions: how the guidelines say to invoice them

Many UAE businesses take a deposit or stage payments before the work is done, and construction and fit-out contracts commonly hold back a retention. Appendix 5 of the Ministry of Finance's Electronic Invoicing Guidelines, version 2.0 of 26 October 2026, sets out how both are handled on an electronic invoice.

Advance payments. When an advance is received, a tax invoice must be issued at the time of receipt. The final invoice then covers only the remaining balance, not the full contract value, because the advance has already been invoiced. The final invoice may carry a reference to the advance invoice, or a note explaining it, and the prepaid amount field may be left blank, since the final invoice already shows only what is outstanding.

The guide's example is a contract of AED 10,000 plus 5 per cent VAT with an advance of AED 1,000 plus VAT. The advance invoice shows AED 1,000 and AED 50 of VAT. The final invoice shows AED 9,000 and AED 450 of VAT.

Where the final invoice has several lines:

• If the advance relates to specific line items, it is deducted from those lines.
• If it relates to the transaction as a whole, buyer and seller may agree how to split it between lines. The split must be reasonable, applied consistently, supported by the commercial arrangement, and must not alter the VAT treatment of the underlying supplies.
• A separate negative line for an advance already invoiced should not be used where the advance can be reflected through the line amounts.

The guide illustrates the VAT point with an advance of AED 3,000 that relates specifically to a product taxed at 5 per cent, sold alongside a zero-rated product. The advance is deducted from the 5 per cent line only. Spreading it across both lines could change the VAT treatment, so it must not be done.

Retention. Businesses may keep their existing commercial and accounting practice for retentions, provided it complies with the VAT and e-invoicing rules. One acceptable practice the guide names is to issue an electronic invoice for the amount payable after the retention is deducted, and a separate electronic invoice for the retained amount when the buyer becomes liable to release it. The contract terms and payment obligations should be reflected in the invoices issued.

For a UAE business, the practical step is to check that your process issues a tax invoice when a deposit arrives, and that final invoices deduct the advance line by line rather than as one negative line.